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    IronFX Intraday Comment | USD/CAD | 20/01/2016

    • The dollar traded higher against most of its major counterparts during the European morning Wednesday, ranging from 0.35% against NOK to 0.12% vs AUD. The greenback traded lower against JPY and GBP in that order, while it remained virtually unchanged against CAD.

    • The British pound gained after the UK unemployment rate declined to 5.1% in November from 5.2% the previous month, to its lowest level in almost a decade. The advance was short-lived however, as average weekly earnings slowed to 2.0% yoy from 2.4% yoy previously. The continued tightening of the labour market could support wages going forwards and this could lead to demand-pull inflation. Just one day after BoE Governor Mark Carney stated that now is not the time to raise interest rates, significant positive UK data are now required to ease some of the selling pressure on the pound. If the UK data continue being encouraging like the jobs report, we may see expectations of a BoE rate hike that have been pushed back to the end of 2016, to slowly return towards the mid-point of the year and support a bit GBP.

    • The market focus for the rest of the day is likely to be fixed on the Bank of Canada monetary policy meeting. Given that BoC Governor Poloz kept the possibility alive for further easing, we expect the Bank to lower rates to support the weak economy in the foreseeable future, if not at this meeting. The implied market probability of a 25bps rate cut at this meeting increased to 86% from 73% early this morning. Given the extent of expectations for an easing, risks around the meeting are likely asymmetrical, with any disappointment likely to generate a bigger market reaction than the anticipated cut.

    • USD/CAD traded higher during the European morning Wednesday, breaking above the resistance (now turned into support) barrier of 1.4600 (S1). In my view, as long as the pair is trading above the short-term uptrend line taken from the low of the 4th of January, the near-term outlook remains positive in my view. Therefore, I would expect the break above 1.4600 (S1) to open the way for the 1.4700 (R1) zone. Looking at our momentum indicators, I see that the RSI edged higher and emerged above its 70 line, while the MACD, already at extreme positive levels, has turned up again and crossed above its trigger line. These indicators detect strong upside speed and support the case that the pair is poised to continue trading higher. Nevertheless, the RSI shows signs of topping above its 70 line. As such, I would be careful of a possible corrective setback before the bulls decide to pull the trigger again. On the daily chart, I see that the rate is trading well above the uptrend line taken from the low of the 14th of May. Therefore, I would consider the longer-term path of USD/CAD to be positive as well.

    • Support: 1.4600 (S1), 1.4420 (S2), 1.4320 (S3)

    • Resistance: 1.4700 (R1), 1.4820 (R2), 1.5000 (R3)

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